five keys to improving research costing in lmic - · pdf filelearning against course...

Five Keys to improving

research costing in low-

and middle-income countries

An in-depth 3-day workshop

[DATES]

[PRESENTER]

Day 1 A quick overview of the workshop

Defining some terms

Introducing Keys 1 and 2

2

Workshop aims and overview

The aims

To explain the importance of accurately calculating the costs of research, especially externally funded research.

To unpack the meaning of full costing, and show how the full costs of research can be caluclated fairly and defensibly.

Overview

Day 1: Nuts and bolts of research costing (K1 & K2)

Day 2: Managing grants effectively at your institution (K3, K4, and K5)

Day 3: Working through some practical examples, review of learning against course objectives, formal course evaluation

3

Framing questions

1: Why is it important to know the full

cost of a research project?

2: Are the full costs of research always

covered by the funds raised for research?

3: What systems do organizations need to

coordinate and manage research funding?

4: How can organizations manage and

improve their relationships with funders?

4

Learning goals

To develop a thorough understanding of the concepts

contained in the Five Keys good practice document,

including points made in the case studies

To work through practical examples given in the Course

Notes, and based on our own experience

Discuss ways in which the Five Keys can be applied in

our institutions, projects, or research networks

5

When you buy a tin of baked

beans do you pay only for

the beans?

First, a question…

6

Why research is important and

needs to be sustained

There are many pressing global challenges

8

Here is a summary…

Health burden: HIV/Aids, Malaria, TB, non-

communicable diseases such as heart disease, diabetes,

obesity and malnutrition…

Social burden: racism, sexism, gender violence,

xenophobia, alcoholism, drug abuse, LGBT–phobias…

Economic burden: unemployment, ineqality,

North-South divide

Environmental burden: Food, water and energy

insecurity, pollution, loss of biodiversity

Others?

9

Unique problems unique solutions

Some problems occur all over the world

Different regions prioritize different problems

Local solutions tend to work best in local contexts

Solutions developed elsewhere often need to be

adapted to local situations

10

Where do real solutions come from?

Knowledge-based organizations…

…that is, research-focused universities

and research institutions

11

We have a shared responsibility…

To develop solutions for the world’s problems, research

institutions are going to be needed for a long time.

So: What can we do to ensure that they stay around?

12

Sustainable research institutions

Inputs

Good students

Good academics

New academics

Income

Student fees

Grant funding

Subsidies

Outputs

• Good graduates

• Research publications

• Protected innovations

• New ideas

• Knowledge

• Solutions

Balance is required

13

Financial balance means…

• Income is roughly equal to expenditure

• Surpluses help institutions to grow and expand

• Losses don’t have to spell immediate disaster

14

This workshop’s central questions

How sustainable is your institution?

How do your research-costing practices affect your

sustainability?

15

Where the Five Keys fit in

17

ESSENCE on Health Research

ESSENCE on Health Research is a collaborative framework between development agencies, research funders, philanthropists and multilateral initiatives to:

Strengthen research capacity and conditions for doing research, especially in Africa;

Implementation of Paris Declaration and Accra Agenda principles in interactions between funders and recipients;

Enhance alignment of efforts and achieve sustainable impact.

http://www.who.int/tdr/partnerships/initiatives/essence

Factors that sustain

research environments

Relevant research

Sufficient research capacity

and skills Adequate

Infrastructure and

equipment

Good governance

Sound research management and

administration

Consistent access to research

funding

Skilled leadership

Research findings

18

Five keys to improving

research costing in low-and

middle-income countries

http://www.who.int/tdr/partnerships/initiatives/essence

19

The Five Keys

Defining and categorizing direct and indirect costs

Determining indirect cost rates

Institutional management of research grants

Developing relevant skills and competencies

Bridging the gap between funders and research institutions

20

Key 1

Defining and categorizing direct

and indirect costs

Direct costs

Direct costs are expenses that are necessary to the

completion of a project.

• Direct costs can include:

Personnel

Equipment

Materials and supplies

Travel costs

Bursaries

22

One-to-one mapping of costs

to a project

c

b

a 1

2

3

Cost items Project

23

If you were digging a hole for a client...

Would you charge for:

Joe’s time?

The shovel?

Joe’s overall?

Joe’s haircut?

The printing of the

job advertisement?

24

Indirect costs (overheads, office costs, administrative costs)

Indirect costs are often difficult to allocate accurately to

a single project as they are often shared between several

projects

Items allocated to indirect costs differ depending on an

organization’s structure and accounting system.

25

a

a

One-to-many mapping of costs

to multiple projects

b

c

d

1

2

3

Cost items

Projects

b d

c

26

Examples of indirect costs

Administration costs

Procurement services

Financial management

Support services – e.g. Research Office

Library services

Legal services

Buildings and equipment

Maintenance

Electricity

Water

Cleaning

Insurance

Waste

Other

Audit fees

Security services

Quality assurance

Marketing

27

If Joe was still digging...

Which of these costs could

be condidered indirect:

Joe’s time?

The shovel?

Joe’s overall?

Joe’s haircut?

The printing of the

job advertisement?

28

Direct costs relate directly to a single project

Indirect costs relate to multiple projects

Direct costs

Indirect costs

= Full cost +

Direct, indirect and full costs

29

Indirect-cost rates

Because indirect costs are difficult to allocate

accurately to a particular project, organizations

calculate a standard rate that is applied to all projects.

An indirect-cost rate is a method of charging individual

projects for their share of indirect costs.

The rate is usually a ratio between the total indirect

expenses and the direct costs.

Understanding how your institution’s indirect-cost rate

is derived is they key to adequate cost recovery, and

thus to ensuring your organization’s sustainability.

30

Calculating an indirect-cost rate

• The ratio of indirect to direct costs is calculated as

follows:

• The indirect-cost rate is the ratio of indirect costs to

direct costs expressed as a percentage

• Indirect costs are usually lower than direct costs

31

Costing a project

Direct costs

• $

• $

• $

• $

$

Indirect costs

• $

• $

• $

• $

$

Indirect cost ratio = %

Full cost = $

32

Exercise 1

• Direct costs relate to the cost of the can and its

contents

• Indirect costs relate to everything else that is needed

to get the can to the consumer

• The amount you spend on the beans is

the full cost – that is, it includes both the

direct and the indirect costs

33

Work against the clock

Beans $10/can

Metal tin $2/can

Label on tin $1/can

Cardboard carton $5/can

Transport to shop $2/can

Advertising $1/can

34

And the answers are…

Direct costs Indirect costs

• Carton 5.00

• Transport 2.00

• Advertising 1.00

• Beans 10.00

• Tin 2.00

• Label 1.00

Direct costs = $13, indirect costs = $8, full cost = $21

8 / 13 x 100 = 62

Percentage of indirect to direct costs = 62%

35

Exercise 2

• Costs related to a research project

• Categorize direct costs linked to the project, and

indirect costs that support this project as well as

other similar projects

36

Work against the clock

Solvents $20

Electricity for lab $2

Waste removal $5

Analytical tests $30

Page costs to publish paper $3

37

And the answers are…

Direct costs Indirect costs

$20.00 $2.00

$30.00 $5.00

$3.00

$50.00 $10.00

Full cost = $60

38

Did you see the bean counter?

39

Recap learning

• Research institutions need to be sustainable

• Institutions can increase their income by charging the full costs on

externally funded research projects

• Full costs include

• Direct costs (arise from one project)

• Indirect costs (arise from multiple projects)

• Indirect-cost (recovery) rates are calculated as follows:

40

Consider…

Are the full costs of your research being met by the

funds raised for research (irrespective of the source)?

If YES:

• How are indirect costs being recovered by the organization?

• How is the organization distributing the recovered costs?

If NO:

• Does your organization have an indirect-cost rate that is applied to

all research projects?

• Does your organization have criteria or processes for deciding

whether to submit research proposals to funders that do not cover

the full indirect-cost rate?

41

Key 2

Determining indirect-cost rates

42

Calculating an indirect-cost rate

Calculations need to be

• Accurate

• Defensible – based on audited financial results

• Updated regularly (annually)

• Flexible enough to suit the requirements of different

funders

It is probably best to calculate one rate for the whole

institution but, in large institutions, it may be necessary

to vary the rate across faculties

43

Some pointers

• There is no ‘one size fits all’ method – context matters

• Your accounting system may limit you to a single rate or

allow different rates for different departments

• Try to agree on an appropriate methodology with your major

funders - this will reduce time spent negotiating about

specific projects

• Recalculate the rate regularly using fresh data

• Use financial data averaged out over about three years to

allow for irregularities

44

Four approaches to calculating

indirect-cost rates

Based on:

1. Total direct costs

2. Modified (or reduced) total direct costs

3. Remuneration costs only (even more modified than 2)

4. Facility costs only

4 1

2 3

45

1. Total direct costs

• A simple approach

• Total indirect costs divided by total direct costs

4 1 2 3

46

2. Modified total direct costs

• Total direct costs are reduced by subtracting:

• Capital expenditure

• Bursaries

• Other expenses that cannot be justified

4 1 2 3

47

3. Remuneration only

• The numerator is the normal sum of indirect costs

• The denominator is the difference between the total

salary cost of the university minus the salary costs of

the Research Office and others that are usually

included in the indirect costs

4 1 2 3

48

4. Separating facility costs

• Facility costs include:

• The cost of municipal services

• Building maintenance

• This method is useful for charging for off-site work

• A facility rate (per meter2 can then be added back in

for on-site work)

4 1 2 3

49

Using the appropriate methodology

Different methods might be better for different contexts:

• Sometimes you want to keep things simple

• Sometimes you are willing to keep the budget low to

help you establish a relationship with a new funder or a

prestigious research partner

• Sometimes a method is determined by a funder or by

your institution’s management team

50

Costing versus pricing

• The cost of a project is not necessarily the same as the

price charged to the client

• The price will depend on the type of project, the

funding stream, the reasons for doing the project, etc.

• There may be reasons to conduct a project:

• for a profit (price is more than the cost)

• on a breakeven basis (the price is equal to the cost)

• at a loss (price is less than the cost)

51

Reasons for pricing projects differently

FOR PROFIT

(Price > Cost)

BREAKEVEN

(Price = Cost)

LOSS

(Price < Cost)

Contract research

Consulting

Research grants

Donations

Research grants

Donations

Clients benefit from the

prestige of your institution

Profits are allowed

Funding stream does not

allow any profit to be

made by the institution

but the research

benefits the institution

The project brings

other benefits, such as

students, equipment,

capacity, etc.

52

Permissible deviations

PERMISSIBLE DEVIATIONS APPLICATION OF THE POLICY ON DEVIATIONS

The funder’s prescribed indirect-

cost recovery rate is less than 25%

of the total project income.

The maximum allowable overhead that the funder

is willing to pay must be used as the indirect-cost

recovery rate.

The funder’s allowable overhead is

greater than 25% of project income

The maximum allowable overhead can be used in

the project budget, but only 25% will be taken as

the indirect-cost recovery rate. If more than 25%

is used, the balance accrues to the project as

profit.

The funder will pay for direct

project costs only (i.e. they will

not pay for university-funded staff

costs or indirect costs)

The researcher can apply for the 25% to be waived

if significant other benefits accrue to the

university (such as student involvement,

publications, patents, etc.).

The funder will allow an overhead

on certain costs only

The researcher can apply for the levy on the

applicable cost to be waived if significant other

benefits accrue to the university (student

involvement, publications, patents, etc.).

(Source: University of the Free State, South Africa)

53

Day 2

Introducing Keys 3, 4 and 5

Role-plays

54

Key 3

Institutional management of

external research grants

55

Pre-grant period

Grant

development Grant

submission

Post-grant period

Grant

implementation

and stewardship

Identify

funding

opportunities

Disseminate

information

Liaise with

funders

Help with

proposals and

budgets

Faciliate peer

and ethics

reviews

Faciliate

institutional

sign-off

Send and

follow up on

proposals

Ensure financial

compliance

Monitor progress

Facilitate financial

reporting

Project closure

An overview of grant management

56

Institutional policies and guidelines

• Outline roles responsibilities, and procedures for proposal development, clearance, approval and sign-off

• Set out the steps involved in setting up, managing and closing out a grant

• Spell out categories for direct and indirect costs

• Explain how to apply institution’s standard indirect-cost rate

• Establish procedures for waiving the standard indirect-cost rate

• Establish how recovered indirect costs are distributed

• Support the development of research proposals and budgets

57

• Given the complexity and competition of

the funding environment, can individual

researchers cope with their own research, as well as

apply for (and then manage) research grants?

• What is currently in place to support researchers in the

pre- and post-award processes? Is this sufficient?

• What organizational changes could strengthen the

coordination and management of research funding at

my institution?

Consider…

58

Key 4

Developing the relevant skills

and competencies

59

The ideal grant manager

• Facilitates the administrative aspects of research

grants and reduces researchers’ administrative loads.

• Is aware of and able to limit the contractual, legal,

ethical and financial risks involved in grant

management.

60

General responsibilities

• Develop policies and procedures

• Develop processes, systems and supporting tools

• Drive policy implementation

• In-house training to build research capacity

• Build relationships and networks to advance research

• Pre-award grants management (proposal development, including budget development and proposal submission)

• Award negotiation and acceptance

• Post-awards grants management (grant implementation and stewardship)

61

Skills and competencies

• Understanding of the institution’s strategic priorities and processes

• Awareness of research processes and of what motivates researchers

• Ability to formulate policies, and to design and implement effective workflows

• Thorough understanding of how direct and indirect costs are defined, calculated, charged, and allocated

• Capacity to monitor and apply institutional and funder regulations

• Ability to coordinate and document institutional approval for grant proposals

• Awareness and experience of grant-seeking techniques and tools

62

Skills and competencies (continued)

• The ability to assess project budgets, and mastery the relevant

financial-management skills

• Strong organizational, analytical and project-management skills

• Good interpersonal and negotiating skills, including the ability to

foster respect for cultural and individual differences

• The ability to communicate technical and budgetary details

• The ability to multi-task and meet deadlines

63

Key 5

Bridging the gaps between funders and

research institutions

64

The gap between funders and grantees

• Policies and practices

among funders, or in

some cases even

within funding

organizations, differ

vastly when it comes

to funding the

indirect costs of

research

• Research institutions

in low- to middle-

income countries

could benefit

significantly if

they were more

successful at

recovering indirect

costs

65

Funders’ concerns about institutions

• Grant management and coordination is weak

• Language barriers and cultural differences

create difficulties

• Institutions have few policies or standard procedures

• The redistribution of recovered indirect costs is not

documented so funders can’t be sure how these will be

allocated

66

Institutions’ concerns about funders

• Funders are powerful and generally unwilling to

negotiate terms and conditions of grants

• Modest budget proposals are more likely to be

successful

• Reporting templates and requirements are highly

varied, and institutions seem to be expected to set up

several different management and financial systems

• Training offered by funders needs to happen in situ;

it is too expensive if held in the US or Europe

67

Obstacles to accurate research costing

• Institutions fail to calculate and negotiate indirect-cost

rates proactively

• Institutional management and coordination of research

grants tends to be random and undeveloped

• Funders policies and practices on reimbursement of

indirect costs vary significantly

• Cooperation between funders, as well as between

funders and grantees could be improved

68

Consider…

How can organizations improve their

relationships with funders?

• What do funders expect?

• What are we not doing that they want us to do?

• How are we currently managing relationships

(strategically and operationally)?

• Where can we improve?

69

Day 3 Moving from theory to practice

70

Indirect-cost-recovery percentage

• The expenditure-apportionment method has been deemed the

most appropriate sector-wide option for the South African context.

• The basis of the calculation is to determine the proportion of the

total expenses that are to do with external funds. This proportion

is then applied to support-services costs, excluding undergraduate-

student-related services.

• The information used is based on the latest audited annual

financial statements of each university (each university should do

this calculation to determine its recovery percentage).

• This approach was designed and agreed to via a sector-wide

process. It was seen as the most practical and simple option, and

was arrived at after many iterations, and taking the differing

contexts of various institutions into consideration.

(Source: University of the Free State, South Africa/Higher Education South Africa)

71

Description Label Formula Amount

Recurrent UNRESTRICTED expenditure excluding residence costs A R 700.00

Recurrent RESTRICTED expenditure excluding residence costs B R 270.00

Total relevant expenditure C A + B R 970.00

Indirect costs allocation ratio, expressed as a % D B/C 27.84%

Total expenditure of support services excluding Research Office expenditure E R 230.00

Indirect expenditure attributable to research support F D x E R 64.02

Research Office expenditure (salaries + operating) G R 4.00

Total research support expenditure H F + G R 68.02

Indirect cost (recovery) rate I H / B 25.19%

72

Let’s go through that again

a bit more slowly…

73

Description Label Formula Amount

Recurrent UNRESTRICTED expenditure excluding residence costs A R 700.00

Recurrent RESTRICTED expenditure excluding residence costs B R 270.00

Total relevant expenditure C A + B R 970.00

Indirect costs allocation ratio, expressed as a % D B/C 27.84%

Total expenditure of support services excluding Research Office expenditure E R 230.00

Indirect expenditure attributable to research support F D x E R 64.02

Research Office expenditure (salaries + operating) G R 4.00

Total research support expenditure H F + G R 68.02

Indirect cost (recovery) rate I H / B 25.19%

1 2

3

4

5

6

7

8

9

74

Description Label Formula Amount

Recurrent UNRESTRICTED expenditure excluding residence costs A

Recurrent RESTRICTED expenditure excluding residence costs B

Total relevant expenditure C A + B

Indirect costs allocation ratio, expressed as a % D B/C

Total expenditure of support services excluding Research Office E

Indirect expenditure attributable to research support F D x E

Research-office expenditure (salaries + operating) G

Total research-support expenditure H F + G

Indirect cost (recovery) rate I H / B

Template for calculating indirect cost recovery rates

75

Did we achieve our learning goals?

To develop a thorough understanding of the concepts

contained in the Five Keys good practice document,

including in the case studies

To work through practical examples from the Course

Notes, and from our own experience

Discuss ways in which the Five Keys can be applied in

our institution, projects, or research networks

76

Where to from here?

• Five Keys to improving research costing in low- to medium-income

countries

http://www.who.int/tdr/partnerships/initiatives/essence

• Videos on YouTube

• Additional training interventions?

Thank you for your attention and participation!

77